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Don't Forget! Here Are Your Year End Reminders

Don't Forget! Here Are Your Year End Reminders

November 21, 2022

"Did I forget to tell you that? I did, didn't I..." -Susan Cevette, WatersEdge Wealth Management

It’s hard to believe, but 2022 is cruising toward its conclusion!

As you start to think about the end of this year and the beginning of next, we wanted to share some information and reminders with you. 

Year End Planning Reminders

No one can argue with the fact that it’s been a terrible year for investors. In fact, “terrible” doesn’t even begin to capture the roller coaster ride markets have been on this year!

But there is always another way to look at things. Maybe this is the year you take advantage of a Roth Conversion or do some Tax Loss Harvesting.

1.Roth Conversion 

A Roth Conversion moves funds from a Traditional IRA or a qualified employer sponsored retirement plan to a Roth IRA. Among the benefits of a Roth are no Required Minimum Distribution age, and the opportunity for your earnings to grow Tax Free until you (or your heirs) decide to withdraw funds.

Benefits of a Roth IRA Conversion:

  • Your investments grow tax-free
  • When you withdraw from a Roth in retirement it will not be taxed
  • If you think your tax rate in retirement may be higher than it is now, pay the tax now and be done
  • You can convert a little at a time so you can spread out the tax consequences
  • There are no RMD’s required from a  Roth IRA
  • Gift your heirs a tax-free inheritance

Reasons to pass on a Roth Conversion:

  • You don’t have the cash to pay the tax bill generated by the gain
  • You will be taxed on the IRA contribution and your gains
  • Remember, due to the current down market the value of your  current assets is lower right now – so even though having to pay taxes on the conversion, you are likely paying tax on a much smaller amount than you would have last year
  • You will need that money in 5 years
  • The conversion impacts your income and pushes you to a higher income tax bracket

Keep in mind:

  • You will be taxed on money pulled out of a Roth if you are under age 59 ½ and if the account has been open less than 5 years
  • You cannot recharacterize (undo) a Roth Conversion
  • In order for your conversion to be processed by the end of the year, the deadline for completed request forms is December 9, 2022**
  • As a result of the down markets, this is a good year to convert

2.Tax Loss Harvesting: Identify Opportunities

This may be an opportune year to sell some securities at a loss to offset a capital gain tax liability. Tax loss harvesting can be used to limit the recognition of short-term capital gain.

3. Consider whether you will do any charitable giving this holiday season

As we get accustomed to the shorter days and chilly nights of November, this is an excellent time to settle in and think about year-end plans.

4. And, finally, please remember: if you are 72 or older, (or 70 ½ if you turned 70 ½ before January 1, 2020) you are required to take an RMD from your Traditional IRA account.

Don’t hesitate to reach out to us with any questions or requests as soon as you can!

LPL Financial has set a deadline date of December 9 for Roth Conversions. We cannot guarantee any requests submitted after that date will be processed.

**Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.